Year-End Financial Review: How to Avoid Financial Complacency

It’s that time of the year again, and while you may have had a strong financial year, don’t fall into the financial complacency trap. The U.S. stock market is up with the S&P 500 and Wilshire 5000 recently posting their highest weekly closes in history. Bonds are having their best year since 2002. US jobs growth soared in November. According to Labor Department numbers, hiring was robust, and the unemployment rate fell to its lowest level in fifty years. So, while holiday shopping might be a priority, it’s pivotal to take a moment to plan and check your future.

Here are three areas that you should focus on before you ring in the new year:

Review Account Statements

  • Diversify Your Accounts – Are your 401(k) plans and other investment accounts properly diversified to achieve the returns required for your goals and are comfortable with the level of risk? Often times, having all cash accounts or stable value funds (SVF) can be jeopardize your future, as can all growth stocks accounts. All cash (too safe) can result in too little return. All stocks can expose you to excess volatility. Successful investing is as much about making money when markets advance, as it is losing less when they decline. It’s best to adjust (and have protection in place) before market corrections occur.
  • Adequate Savings – Contribute enough to your 401(k) to earn matching company contributions. If you max out your 401(k) contribution limits, contributing after-tax to your 401(k) plan is unlimited, and it allows you to benefit from additional tax deferral earnings, capital gains and interest of your investments.
  • Simplify – What accounts can you consolidate? According to the Bipartisan Policy Center, there are an estimated 25 million orphan 401(k) accounts that aren’t being monitored. Orphan accounts are abandoned accounts left with former employers. Avoid leaving accounts behind and always tend to your funds.
  • Cash Reserves – You should have an emergency fund, which is equal to three to six months’ worth of living expenses if you’re working, and one to two years of savings if you’re retired. Ask your banker for competitive interest-bearing accounts or consider on-line Federal Deposit Insurance Corporation (FDIC) insured money market accounts.

Paycheck Review

  • Adjust Tax Withholding – Do a quick forecast of your 2019 income taxes and adjust your withholding as needed for your remaining December paychecks. Your accountant or enrolled agent would appreciate the opportunity to act before the end of the year.
  • Automatic Transfers – It’s a lot easier to save money before you have a chance to spend it. Take the time to review and update your 2020 budget.

Risk Management

  • Insurance Review – Do you have adequate coverage, and is it competitively priced? Talk to your advisors, insurance agent and get bids as needed. Also, if you have a Flexible Spending Account (not a health savings account), file for any remaining 2019 balances.
  • Update Your Beneficiaries – Review and update your life insurance, annuities and retirement accounts, as needed. And consider charities as potential retirement account beneficiaries – that’s a tax-efficient way to transfer your wealth.
  • Estate Plan – Is it time to schedule an estate plan review with your attorney? Schedule a meeting with your attorney to start the new year off on the right foot.

Reflect and celebrate what you’ve accomplished in 2019. Whether it was sticking to your savings and investment plan, getting your debt under control or being promoted in your career – don’t forget to celebrate your victories.

Secure your future wisely.

About Brian Loy

Brian Loy writes insightful and inspiring articles about the ever-changing world of personal finance and the global trends that affect the risk and return on investments and shape the financial- and retirement-planning process.
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